Microsoft shares gained nearly 1% on Tuesday despite a downgrade from Oppenheimer. Analyst Timothy Horan lowered his rating on Microsoft stock to perform, or neutral, from outperform. He cited concerns about consensus estimates for revenue and earnings per share being too high for the recently completed quarter.
“Enterprises have been slow to adopt AI and associated revenues will likely disappoint,” Horan said. He also noted that heightened capital expenditures and operating expenses to support artificial intelligence initiatives would pressure earnings. Horan expressed concern over mounting losses at Microsoft’s partner OpenAI, saying, “Because Microsoft is investing in a ‘once-in-a-generation technology,’ we don’t believe expanding margins will be a short-term priority.”
Despite this, Microsoft stock rose 1.3% to close at $414.71.
However, it remains trading below its 50-day and 200-day moving average lines. Microsoft has not yet set a date for its fiscal first-quarter earnings report, but it is likely to occur in about two weeks. Analysts polled by FactSet expect Microsoft to earn $3.10 per share on sales of $64.6 billion in its fiscal Q1.
In the year-earlier period, Microsoft earned $2.99 a share on sales of $56.5 billion.
Microsoft’s earnings and AI concerns
Elsewhere on Wall Street, analysts at Truist Securities and Wells Fargo reiterated their buy ratings on Microsoft stock.
Truist analyst Joel Fishbein maintained his buy rating with a price target of $600, emphasizing the growing importance of Microsoft’s cybersecurity business as a potential upside driver to current expectations. Meanwhile, Wells Fargo maintained its overweight rating with a price target of $515, noting that stronger-than-usual checks suggest momentum in Microsoft’s Azure cloud computing business is continuing. Jim Cramer, host of CNBC’s “Mad Money,” expressed his continued support for Microsoft stock despite the recent downgrade.
Cramer finds Microsoft’s resistance to downgrades a bullish signal, stating, “I like the stock of Microsoft right now.”
The downgrade is part of a broader trend of skepticism toward big tech. Amazon.com Inc. recently received a rare downgrade from Wells Fargo Securities, which expressed caution on margin trends. Additionally, analyst Edison Lee at Jefferies assumed coverage of Apple Inc., downgrading the rating to “hold” from “buy” due to overly optimistic expectations for the company’s latest iPhones, which are the first to come with artificial-intelligence tools.
Despite the recent downgrades, Wall Street remains overwhelmingly positive on Microsoft’s stock and on big tech in general. Over 90% of analysts tracked by Bloomberg recommend buying Microsoft shares, with none rating them as a sell. The average analyst price target indicates an upside of more than 20% over the next 12 months.
- CNBC.”Jim Cramer says he likes Microsoft stock despite an analyst downgrade. Here’s why”.
- Investors.”Microsoft Stock Analysts Mixed Before Earnings Report”.
- Yahoo.”Microsoft Cut as Oppenheimer Warns AI Revenue Overestimated”.